August 2, 2023

US Credit Rating Downgraded From AAA to AA+

📰 News Organizations

  • US Credit Rating Downgraded From AAA to AA+. The downgrade reflects expected fiscal deterioration, Fitch says. This move comes in the wake of major political battles over the nation’s borrowing and repeated standoffs over raising the debt limit.

  • US Job Openings Fall to Lowest Level Since 2021. The number of available positions eased to 9.6 million in June, suggesting some softening in demand for workers in an otherwise resilient labor market. The drop in openings was concentrated in goods-producing sectors.

  • Starbucks Rings Up Record $9.2 Billion in Sales as Consumers Splurge. The company said that customers flocked to cold espresso beverages and ones modified with cold foam and other add-ons, but said that employee wage increases and investments in its cafes dragged down its profit.

  • AMD Revenue Falls 18% as PC Market Shows Continued Weakness. AMD said revenue for the second quarter fell 18% from a year earlier and issued a forecast that trailed analysts’ estimates. The client segment suffered a steep drop in the quarter due to a weak PC market.

  • Uber Delivers First-Ever Operating Profit of $394 Million. The results were driven by solid growth in both of Uber’s core businesses, as the number of rides in the U.S. and Canada surpassed pre-pandemic levels for the first time, and demand for delivery stayed strong.

  • BP Posts 70% Drop In Second-Quarter Profit. The drop is driven by weaker fossil fuel prices, a trend observed across the energy industry. Nonetheless, the energy giant boosted its dividend by 10% and would repurchase $1.5 billion of its shares over the next three months.

  • Pfizer Earnings Fall Sharply Amid Lower Sales for Covid Products. Pfizer’s second-quarter sales of its Covid pill and other key products underperformed, causing the company to shave $1 billion from its full-year sales forecast. Covid pill sales missed Wall Street estimates by $700 million.

  • Merck Raises 2023 Sales Forecast as Vaccine Sales Surge. Cancer drug Keytruda and Gardasil beat analysts’ estimates for quarterly sales, driving the company’s annual revenue forecast higher even as costs for its acquisition of Prometheus Biosciences Inc. led to an earnings outlook cut.

🐦 Twitter

  • Longer-term interest rates have been rising, but there’s still a lot of skepticism in pricing longer-term SOFR/Fed Funds above 3.50%. June 2026 SOFR futures are pricing at about 3.50%. Source.

  • The 3-Month Treasury Bill yield has moved up to 5.55%, its highest level since January 2001. A year ago, it was at 2.41%, and two years ago, it was at 0.06%. Source.

  • Even if the Fed skips the next FOMC meeting, its balance sheet drawdown continues unabated. The central bank’s System Open Market Account has shrunk by almost $1 trillion since QT started. Source.

  • Once the yield on 10-year Treasuries takes out the Dec. 2022 high of 4.34%, it's likely yields will spike to 5%. This will be a huge problem for the housing market, commercial real estate, high-yield debt, the stock market, banks, consumers, and governments. Basically everyone. Source.

  • Russia says expanding the BRICS group of nations will be a topic high on the agenda at the summit later this month. More than 40 nations are interested in joining. The world is on the brink of transformation, and many have zero clue. Source.

  • Lots of stock upgrades across Wall Street. Topping the list: Oppenheimer's John Stoltzfus, who raised his year-end price target on the S&P to a record 4,900 from 4,400. Under that scenario, the S&P would end the year about 28% higher. Source.

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Moses Kagan

📓 Online Publications

  • JetBlue Beat Second-Quarter Expectations. Like other airlines, it is seeing significant demand and full planes this summer. But the company's results are unlikely to sustain that momentum through the rest of the year. JetBlue forecast the third quarter would be breakeven to a $0.20-per-share loss.

  • Caterpillar’s Sales Surge as Construction Booms. Revenue surged 22% in the second quarter as demand for its construction products rose despite higher prices. The company said its sales benefited from dealers stocking up on inventory, as well as more sales directly to customers.

  • ISM® Manufacturing index Increased to 46.4% in July. Economic activity in the manufacturing sector contracted in July for the ninth consecutive month following a 28-month period of growth, say the nation's supply executives in the latest report.

  • Foreign Buyers Snapped Up Fewer Homes. Over the past year, international buyers snapped up 7.9% fewer residential properties than they did during the same period a year ago. As home prices have soared, foreign buyers are also facing the same affordability challenges as U.S. homebuyers.

🎧 Podcasts

  • Booming Markets Neutralize The Impact Of Rate Rises On US Corporate Fundraising. The current economic conditions make it easier for these companies to raise cash. The FT's Harriet Clarfelt says this neutralizes the goal of the Fed to slow down the economy and get inflation really under control. Source(2:05)

  • China’s Overseas Investment In Metals And Mining Set To Hit Record. A report found that China sunk more than $10bn into investments and new contracts in the sector which is more than what China spent last year. The investment shows China's clean energy supply chain bet. Source(4:24)

  • A.I. is Shaping the Future of Warfare. Palantir got a big boost after Dan Ives dubbed it the “Messi of AI” because the software company is poised to become a major player in the military, intelligence agencies, and businesses due to the demand for its new AI platform. The stock is up 211% this year. Source(10:49)

  • Federal Reserve's Confident on a Soft Landing. Andreas Steno Larsen says the Fed no longer sees a recession as necessary to bring inflation back to target based on Jay Powell's latest interview, indicating growing confidence in a soft landing scenario. If the economy shows positive signs in the coming months, it may indicate another rate pause. Source(4:04)

  • Housing Crash is Unlikely. Jason Hartman says a housing crash is unlikely because there are not enough distressed sellers. Most homeowners have low mortgage payments or none at all, and mortgage delinquency rates are low. Inventory levels are also low, which supports prices. Source(10:54)

  • Elon Musk’s Satellite Dominance Is Raising Global Concerns. Starlink has more than 42,000 satellites in orbit and has a bigger network than any other satellite internet provider. In fact, no government or competing company has managed to build a satellite internet network as comprehensive as that of Starlink. Source(12:10)